With the start of the school year comes another fall tradition here at TOTM: Nobel speculation. More specifically, every fall I yell from the rooftops that some combination of Armen Alchian, Harold Demsetz and Ben Klein should win the award. In 2006, I argued that the UCLA trio outperformed the more conventionally wise trio of Holmstrom, Hart and Williamson by standard citation measures. In 2007 I repeated my call for the UCLA trio (hedging my bets by also pulling for GMU colleague Gordon Tullock — another well deserving candidate) and was disappointed again. 2008? I’m nothing if not consistent. In October 2008 I wrote:

I’m sticking with the UCLA economists: Alchian, Demsetz and Klein for contributions to the theory of the firm, property rights, and transaction cost economics. An Alchian and Demsetz prize is probably more likely, but Klein’s contributions with Alchian to the theory of the firm along with his own subsequent extension of that work (see my article on Klein’s contributions to law and economics here) makes the trio especially formidable.

The disappointment was a little bit more salient in 2008, as Thomson Reuters listed Alchian and Demsetz in their list of top 3 possible picks. What a tease. Well, its not quite October yet, but I thought I’d get an early start this year and release my 2009 predictions: Armen Alchian, Harold Demsetz and Ben Klein for contributions to the theory of the firm, property rights and transaction cost economics.

Alchian’s contributions to economics and law and economics are Nobel worthy. Armen’s classic paper with Harold Demsetz (AER, 1972) remains influential in the theory of the firm literature and is listed as the 12th most important paper in economics since 1970 by Kim et al. Klein, Crawford and Alchian’s seminal analysis of vertical integration and the holdup problem (JLE, 1978) ranks #30 on this list. With two hits in the top 30 economics papers since 1970, there is no doubt that Armen had impacted the field. Susan Woodward, a former co-author of Alchian, has authored a wonderful chapter on Alchian’s contributions to law and economics that will appear in the Cohen & Wright Pioneers of Law and Economics volume (there will also be essays on Klein and Demsetz). As I’ve written previously, Alchian also thrives by other measures of scholarly output. Cite counts do not begin to do his body of work justice. Consider, for example, that Armen’s teaching style is the stuff of legend (I say this having the great benefit of having Armen on my dissertation committee, but also sharing as colleagues two Bruin economists that studied under Alchian and knowing many more). Tales are abound of the careers of economists-in-the-making that Armen influenced in one way or another. Nobel Laureate William F. Sharpe captures some of this in his autobiographical exposition explaining Alchian’s influence on his own career:

Armen Alchian, a professor of economics, was my role model at UCLA. He taught his students to question everything; to always begin an analysis with first principles; to concentrate on essential elements and abstract from secondary ones; and to play devil’s advocate with one’s own ideas. In his classes we were able to watch a first-rate mind work on a host of fascinating problems. I have attempted to emulate his approach to research ever since. When I returned to pursue the PhD degree, I took a field in microeconomics with Armen and he also served as chairman of my dissertation committee.

Alchian has also contributed greatly to the law and economics movement through his involvement in the George Mason University LEC judicial training programs. In an important antitrust policy speech, former FTC Chairman Timothy Muris and my GMU colleague articulates a sentiment I’ve heard repeatedly from those who went through the program or watched Armen teach:

Armen Alchian was unexcelled in teaching economics to lawyers. He often presented economics socratically – a technique familiar to lawyers. For years Armen was one of the most popular instructors in Henry Manne’s programs for teaching economics to lawyers. In short courses, he taught literally hundreds of federal judges and law professors.

My blog post making the case for a “UCLA School” Nobel Prize in honor of the contributions of Alchian, Demsetz & Klein

As strong as the case for an Alchian Nobel is, the likelihood of a solo Nobel in the areas of the theory of the firm or property rights is unlikely. And what better way to share the prize than with two co-authors who have made substantial and significant contributions, but individually and collectively, to economic problems involving the theory of the firm, property rights and transaction cost economics taking a similar methodological approach and bringing distinction to the UCLA School of economics. I’ve written extensively about Klein’s contributions here. But the most well known contributions (in addition to Klein, Crawford Alchian (1978) and the set of follow up papers in the Coase v. Klein exchange over asset specificity and vertical integration) include Klein & Leffler (1981), Priest & Klein (1984), Klein and Murphy (1988) and Klein (1995) and Klein (1996) ranging on topics from the role of reputation in the design and performance of contracts, the seminal model of litigation and settlement, vertical restraints, and the economics of franchising.

Demsetz’s contributions to economics are perhaps the most well known of the trio, including the coining of the phrase “Nirvana Fallacy,” but a cursory list as a refresher for the Nobel Committee:

1967, “Toward a Theory of Property Rights,” American Economic Review.

1968, “Why Regulate Utilities?” Journal of Law and Economics.

1969, “Information and Efficiency: Another Viewpoint,” Journal of Law and Economics.

As is customary, I will take the field against any individual or grouping you wish to put forward. Feeling generous, in fact, I’ll let you have Alchian, Demsetz and Klein as well as another individual or group that you think more likely to win. The usual stakes.

Thanks for the support Josh. Actually since Steven N S Cheung returned to Hong Kong, a lot of his former colleagues, Doug North in particular, thought he quit to do economics anymore.

In fact, that is not the case. Cheung continued to write, albeit only in Chinese and in popular magazines and newspaper.

And just a couple of years ago,circa 2005-06, Cheung’s magnus opus “Economic Explanation,”(three volumes in all) came out.

In that treatise, one would see how Cheung is able to use the concept of rent to derive testable hypothesis, to transform the textbook treatment of cost curves from a back-looking model to a forward looking one, to use UCLA style price theory to explain bundling and other business practices….

Simply put, the three volume set helps preserve and extend the UCLA/Chicago price theory tradition. Cheung is planning to revise his three volumes set soon and to have an English edition eventually.

Observer: I see your 1990 and 1997 and raise you a 2002 (Smith, Kahneman), 1993 (Fogel, North), 1992 (Becker), 1991 (Coase), 1986 (Buchanan) and 1982 (Stigler). Certainly, the Prize — feel free to go by the Sveriges if you like, whatever — can go to economic contributions that do not favor mathematical elegance at the expense of substance (which is NOT to say that I agree with your characterization of the other prizes).

Gary: a wonderful idea, I’m all for stacking the deck with Bruins, though I’d think the natural pairings for the UCLA groups would be Cheung/ Demsetz on the one hand and Alchian/ Klein on the other?

There is no Nobel Prize for Economics, there are 5 that were established in the will of Alfred Nobel (Physics, Medicine, Chemistry, Literature, Peace). What you refer to is the “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”.

I agree with Nassim Taleb that this award should be abolished given its history of going to mathematically elegant but practically useless or destructive theories such as:
1)1990 award to Sharpe, Miller and Markowitz for theories proven wrong and contributing to the cause of the 1987 crash (ie portfolio insurance)
2)1997 award to Merton and Scholes for derivative pricing theories who then later blew up at LTCM, almost bringing down the financial system and arguably leading to large amounts of future moral hazard with the bailout of LTCM.

[…] including some disappointment that the prize was not shared with any of my perennial UCLA trio of Alchian, Demsetz and Klein (In particular, as a Klein student I would have been thrilled to see Williamson and Klein share […]